Kholongchhu to begin construction by end of this year

Kuensel | Dechen Dolkar | February 20, 2024

The Druk Green Power Corporation (DGPC) continues to face challenges in kickstarting the construction of the 600MW Kholongchhu Hydropower Project due to hurdles in securing financing.

Since the closure of the joint venture for the project over a year ago, DGPC has taken full ownership of Kholongchhu Hydro Energy Ltd, the entity responsible for constructing, operating, and maintaining the project.

DGPC’s plan entails structuring the project financing with a debt-equity ratio of 70:30, aiming to secure 70 percent of debt financing from the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), both renowned Indian government-backed financial institutions specialising in the energy sector investments.

The remaining 30 percent equity will be raised through capital markets.

However, mobilising financing for such a large-scale project is proving to be a complex and time-consuming process, as acknowledged by senior management.

The estimated cost for completing the project stands at slightly over Nu 54 billion.

Negotiations with PFC/REC for debt financing, which were initiated by the former joint venture partners, are still underway.

Dasho Chhewang Rinzin, the managing director of DGPC, is optimistic that with continued negotiations and support from both governments, construction could resume by the end of the year.

Following the exit of SJVNL from the joint venture, Kholongchhu Hydro Energy Ltd (KHyE) has been restructured into a smaller unit primarily focused on safeguarding existing infrastructure assets.

This unit also aims to address outstanding payment issues with contractors and complete remaining infrastructure works such as roads and residential/non-residential colonies.

Although major contracts for critical components like the head race tunnel, dam, and power house have been temporarily suspended, they have not been terminated, indicating the intention to restart construction upon achieving financial closure.

DGPC and KHyE are actively engaged in discussions with PFC and REC to secure debt financing for the project, while both the Bhutanese and Indian governments are keen to see the project progress.

With the closure of the joint venture, DGPC, now the sole shareholder, is expected to mobilise 30 percent equity component.

Negotiations with PFC/REC for 70 percent debt financing are anticipated to conclude in the near future.